Dan Godfrey: if fund management doesn't change, people will be "marching down the street with pitchforks"

Merryn Somerset Webb talks to Daniel Godfrey, ex-chief of fund managers' trade body the Investment Association, about management fees, executive pay, andhow to improve the industry from the consumer's point of view.

If you missed any of Merryn's past interviews, you can see them all here.

Merryn: Hi, I'm Merryn Somerset, web editor in chief of MoneyWeek magazine. Welcome to another MoneyWeek video. I have with me today Daniel Godfrey, the ex-chief executive of the Investment Association. We're going to talk about a huge variety of things across the fund management industry. How funds should work, how charging should work, what would make the industry better or better from the point of view of a consumer, anyway. But first of all, just talk briefly about why, when I introduce Daniel, I introduce him as the ex-chief executive of the Investment Association. What happened there Daniel?

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Daniel: Well good morning Merryn. Well simply, what happened at the Investment Association was that a small number of quite large members took the view that they weren't happy with the direction of travel of the association, and made it clear that they intended to leave. And in a trade association, really your strength comes from the unity of the membership. And so clearly, even if it's a small percentage by number, and even a relatively small percentage by total value of the assets managed, it give you a real and immediate problem, because you need to be speak with a single unified voice. And I felt, having considered it, that it was in the interests of the association for me to leave, and so about two months ago, I did.

Merryn: Several of those people left anyway, right?

Daniel: Well, I don't know what the outcome ultimately will be. Clearly there were a couple who had indicated that they intended

Merryn: Well I saw yesterday, St James' Place said they won't be, and Schroders. So you're throwing yourself on your sword. It's made no difference whatsoever.

Daniel: Well, I don't think there was much of a choice, to tell you the truth. Clearly there was a very public discussion going on at the time. My board were concerned that perhaps other members might follow the ones who had indicated that they intended not to renew. As far as I'm aware though, the only one that's publicly made any comment has been St James' Place, and so I think you'll just have to wait and see what the outcome is. You know, whatever's reported, I've seen nobody actually making any public comment from any of these companies, expressing any dissatisfaction with me or the direction of travel of the Investment Association, which was executing a strategy approved by the board.

Merryn: Yes, interesting, let's talk about that direction of travel. You were trying to do something very specific at the Investment Association weren't you?

Daniel: Yes, well the strategy of the Investment Association was to try to make investment better.

Merryn: And when you say better, what do you mean? Better is a very subjective word isn't it. Better as in more profitable? Better as in better for the consumer?

Daniel: I think that there's no tension between the two, actually. It starts with better for the consumer. So if you can make investment better for the clients, we believe that makes it better for the companies in which we invest, better for the economy, and better for the long term sustainable commercial success of our members.

Merryn: And why does that necessarily follow? I mean the members of the Investment Association have been stunningly commercially successful for many, many years now, without paying much attention to the needs of the consumer at all. So while I like to think that I agree with you, I'm not sure that it necessarily follows that treating your consumers well leads to a profitable business. Perhaps a better business, depending on how you define that, but not a more profitable business, and perhaps for the members of the Investment Association, that's what matters.

Daniel: Well I can see why you might say that, but of course, I think you'd also be the first to say that the past is not necessarily a guide to the future. And we've been seeing disruption through technology and disruption through new entrants, and we've seen prices coming down hugely in passive funds. And I think we're also going to see a regulatory focus on the investment management sector that the banks have been having for the last few years, and so what has been true in the past, may not be true of the future.

I think there's also a fundamental, philosophical point here, which is that when a client pays an investment manager to manage their money on their behalf, they pay them to be their agent. And if you think about what an agent is, what it means to be an agent, I think it's pretty clear that you pay someone to be you, but just a better version. Someone who knows more than you do about something. Someone who has greater expertise, maybe greater networking, greater connections, greater facilities and technology, maybe someone who can use scale. But effectively, to do a job that you would otherwise have to do for yourself, and if you pay someone to do that, to act as you, then I think that agent has a responsibility to behave as if they are you, and put your interests first.

Merryn: But hang on, there's an assumption in here that the average investor cares about how companies are run, cares about social and environmental policy, cares about how much chief executives are paid etc when maybe they don't. All they care about is how much money they get out at the end. So there's another connection here, that I think I agree with you, but the investor on the street might look at this and go, well I don't care, I might have given these people my money to invest, but what I've really given them is my hopes and my dreams for the future. And those hopes and dreams are connected entirely, 100% down to the money that man can make me, and how much the chief executive of the companies he invests in, is entirely by the by. How much money can he churn out for me? So maybe do we make this too complicated?

Daniel: No, I don't think so. Maybe I have actually, because that wasn't the point I was trying to make.

Merryn: Sorry, I'm an interrupter, terrible

Daniel: No, I think it's a very good point. I'll come back to you in a moment. So really, what the point I was trying to make there is, that you, my investor, are paying me to do the best possible job for you, and to get you the most money, and that involves steering your money carefully through the capital markets, not allowing the brokers, other intermediaries in those markets, to extract more rent than is absolutely necessary. We are your agent. We should be your campion in those markets, and we should get the best possible return for you.

Then to come back to your point, there's a question, I think, about timescales, time horizons. So yes, it may be that if we are only focusing on how much money a company's making over the next three months, 12 months, maybe even two or three years, that the environmental footprint of the company, the way they treat their employees, the reputation they have in their local communities and the pay of the chief executive, is not relevant. But if we are looking at investing in companies, rather than just trading in stocks, if we're looking at it against the time horizons that I think your readers have, which will typically be ten or 20 years.

I mean, even someone like me, in my mid-50s, I'm really thinking about saving money, maybe for the next ten years, before I start using it. By then I hope to have 15 to 20 years before I stop needing it at all

Merryn: We'd better find you a job.

Daniel: maybe even longer, so I'd better find a new job. But over those sorts of time horizons you want to be investing in great companies, that are going to deliver consistently over five, ten, 15, 20 and more years. And I think there, actually, the way they treat their staff, the development they put into their staff, the strategies they have, the governance that boards can exert, and yes, the pay of the chief executive, their environmental footprint and so on, actually do make a difference to great companies that are going to be around for a long time.

Merryn: Yes, now one of the things you did at the Investment Association was, you created a sub-statement of principles of things that you feel, or the organisation at the time appeared to feel, that investment managers should go by. And I've got them here and it's pretty innocuous stuff really. One would assume this stuff, always put client interests first, ahead of their own maybe you wouldn't assume that take care of clients' money as diligently as would their own, ensure regular timely, clear lines of communication etc.

What was there in here that any particular organisation felt they were unable to sign? Because in the end, I can't remember the percentage of institutions, about 30% of the assets and the management connected to the IA signed up in the end. That's a pretty small number for things that sound relatively innocuous to someone who's not involved in the industry and doesn't know quite how dodgy it can be.

Daniel: Well I have to say, it was a bit of a surprise to me that we haven't got more, or that we didn't get more of the members to commit themselves to this, over the timescale, since they were first launched. And I think that the biggest reason why there haven't been more signing to it is that we put a requirement around the principles, to say that anyone who signs them had to do two other things. Not just sign them and say, we believe in these, because I think we've seen those coming out of companies ears over the last ten years, and they don't necessarily mean anything.

So we put in place two additional steps to try to give people reading those principles, and seeing the companies that had signed it, some confidence that actually meant something. That involved signatories doing two things, as I said. Firstly, putting a statement on their website, setting out in their own words how they implement these principles within their own firms. What the principles mean to them, how they recognise issues that may be challenging to them, and how they identify them and deal with them. And then secondly, a year on from that, to make a statement on their website saying that their approach to implementing the principles is working, or identifying any issues they've identified and how they've dealt with them.

And I think what I didn't expect, I suppose, at the time we put this out, in April 2015, was that a number of firms would look at this and say, well, if we're going to make these statements, then we're going to have to put this through our own entire internal compliance process and show how we can evidence, not that we just say we're doing it, but how, if someone came along to us and said, show us your audit process, we can do that. And I think a number of firms have felt, not that they don't follow these principles, not that they don't believe in them, but they're wondering, scratching their heads a little, how do we go about evidence.

Now clearly there have been 25 firms who've taken the view that they can just get on with it, but I think I have some sympathy in this very detailed regulatory environment that people live in, with firms who've decided to take that approach. I think my own view was, that this is a high level statement of principles, and that what you're committing to do, is to do your utmost to live by them, and so I think, had I been running a firm, I would have been in the camp which said, well, you know, let's sign up to this, let's tell people how we do it, and let's get on with it. If we've identified that we're not doing something here, well we jolly well should be.

Merryn: See, well I have some sympathy now, now you say there were two extra steps, which I wasn't so sure about. I have some sympathy, you know, people live in a very compliance-layered world, and I've sat through endless meetings while the correct wording is found for a piece of compliance or regulation that suits. If this were to add yet another layer on top of all the regulation that people feel that they're burdened by already, where they're constantly trying to meet the compliance wording that is required for things, when they hopefully, feel that their firm already fulfils much of this without having to jump through those hoops, maybe.

Daniel: Yes, well I think my feeling was, and I think there are clearly others who take that view, that that's not necessary. That's not an implication of having a high level statement of principles, which you are committed to doing your utmost to uphold, but clearly people take their own views.

Merryn: OK, I tell you what, let's be a bit more theoretical. What does the perfect fund look like? How is the perfect fund managed?

Daniel: I'm not sure.

Merryn: When you've spent all this time looking at all of them. What's ideal?

Daniel: I can tell you what I like, but it's just my own emotional view.

Merryn: Yes, what you like is probably ideal. Go for it. It's what you like.

Daniel: I doubt that, I'm not a professional. I wouldn't know, in fact, I'd put a big rider on this, which is

Merryn: Hey no, the coughing from the side-lines is always more fun.

Daniel: Please don't regard this as right in any way, shape or form. Personally, as you may already have got the hint, I like investing with conviction, in companies that I believe are going to be around and successful for long periods of time. So I'm looking for conviction investors who have probably relatively high concentration and low turnover.

Merryn: OK, so we're looking at funds with a very high active share, ie, they're operating far away from the benchmark with a relatively small number of stock. Say,what, 20, 25 kind of thing?

Daniel: Yes, maybe, depends on the size of the fund.

Merryn: Presumably then, a relatively small fund, because you don't want them holding vast positions in stocks they can't get in and out of quickly etc.

Daniel: I think you can have larger funds with higher numbers of positions, but yes, essentially

Merryn: OK, and how is the guy running that fund paid, in an ideal world, how is that fund charged?

Daniel: Well, do you know, this is something that I've been backwards and forwards on over the years, because I think that there's no reason why, for instance, a performance fee makes someone come in to work and do a better job every day. It shouldn't actually, they should be coming in, trying to find the best stocks, doing their analysis and so on. But I can see also from a consumer's perspective, it certainly feels a lot better if the fund manager only makes an awful lot of money when they've made you an awful lot of money.

Merryn: Well, where do you get this money?

Daniel: So I'm actually quite open minded to different models. I think really what's key to me is the style of the manager and the track record of the manager, because if they perform the way I think that sort of style will perform over long periods of time, then whether the manager's paid a flat 1%, or 0.5% plus a performance fee, isn't going to make a lot of difference.

Merryn: You see, a flat 1%, I think that's quite a high fee.

Daniel: Yes, it would be.

Merryn: We're just chucking that out as though it's OK, flat 1%.

Daniel: It's an easy number. A round number. I pulled that out as an example of a number.

Merryn: Fees are falling. A flat 1%, I think those days are over. You know, a lot of new fund managers come to us and, when you're starting with a small amount of money, it's very hard to keep your show on the road if you go below 1%. But everybody who comes to me with a new fund or a new boutique management company or whatever, I always say to them, you know, we won't be supporting you long term unless I know that there's a plan to bring this fee down.

Daniel: Yes, to bring that down.

Merryn: Not below 1%, way below 1%, and I want to see something tiered, and I don't want to see a performance fee. I want to the manager putting a large amount of his personal wealth into his fund. His performance fee is a good return on his own money, you know. So it always seems to me that that would be a much better way to structure this. To say to the guy, OK fine, you can have your 80 basis points, your 0.8%, whatever it is, but 20 of those go straight back in.

Daniel: Yes, so I think that, as I said at the beginning, in theory, I'm not a fan of performance fees. But then I look at something like Neil Woodford's Patient Capital investment trust launch, where the underlying cost is just to meet the running costs, and there is no management fee except the performance fee, which they earn if there's an over 10% return.And I don't think I really feel that's not a good model.

Merryn: I think it's a really dodgy model actually, because you can make those the cost of running management anything you like. You know, that covers the cost of the salaries for everybody except for Neil, right?

Daniel: Well, no, I don't think it does. I think there's an independent board that ought to be controlling that, and so I would hope the board would have good governance process so that that is the underlying running costs.

Merryn: Well, we'll see.

Daniel: Administration, not fund management.

Merryn: It always seems to me that, you know, people should be paid a reasonable price for doing a reasonable job, and as soon as you start mucking around with that, saying, well I'm not going to take a penny, not me, not until I outperform this or that, suggests that you're not doing a reasonable job already. I think it's such a dodgy area.

Daniel: Well I know that I would probably not take a performance fee if I was running a firm, but then I think you have to look at fund managers and say, well some of them have capacity issues, some of them will close funds once they reach a certain size.

Merryn: So, close.

Daniel: And so there is their management skill, if you like, is a scarce resource. If you go back to the statement of principles, you'd see that one of the principles would be that you shouldn't charge so much that you can't deliver on your customer proposition. So I think that that is a really good yardstick to take. I think also that I agree with you. I think that the industry's not great at sharing the benefits of economies of scale with the customer, and I do think that that's one of the things that we've seen in passive, that we haven't really seen in active. What we've seen in passive, is that as those funds have got bigger, the costs have come down, and

Merryn: Come down, yes, because that's a genuinely competitive market. Each product is more or less the same, except there's probably competition here, yes.

Daniel: Well, it's a kind of commodity, whereas active, you don't know what's going to happen in the future. What you know is what's happening

Merryn: Also, no, it's basically a pile tracker instead of commodity.

Daniel: Well not the ones that I invest in.

Merryn: Not the ones you invest in and of course there is a core part of the active market that we thoroughly approve of. Now where do you think fees will settle for active management?

Daniel: Sorry, I really have absolutely zero idea on that.

Merryn: You see, I have this idea that, you know, you work incredibly hard from inside the industry, to try and improve it. To try and improve transparency, bring down fees etc. And I have a feeling it may, in the end, come from the outside, and it never has in the past, because people have saved differently, to how they're going to save in the future. People have come up to retirement, they, you know, normally focus as much on their money for retirement, do they really, or they haven't till quite recently. They retired and then they had either a final salary pension, or they had an annuity, and so how the money was run, during their retirement, was an irrelevance, nothing to do with them at all. Their income is set in stone.

Now, with pensions freedom, you have hundreds of thousands of well-educated people coming into retirement in good health, at 60-odd, knowing they've got 30-odd years' worth of looking after their own money, or keeping an eye on their own money. They're computer literate, they can get any kind of information they want at any time. And while 1% might not sound like much when you're 40 and you're not living off that money, when you're retired, and the yield is 3.5%, suddenly, you know, paying a third of your income away in fees makes a difference. And I suspect it's going to be that army of bolshie pensioners who are going to transform this industry from the outside, because they won't have it. Why would they put up with that?

Daniel: Well it could be. I mean, there are a number of directions it could come from yes.

Merryn: Those are MoneyWeek readers by the way, those bolshie pensioners. They're going to change the world.

Daniel: Lucky for them. It could come from them, and of course it could come from multiple sources at the same time. So it could be client driven. It could be new technology driven. It could be regulatory driven. And I think all of them, in fact, will create pressure. Now again, you know, I'm sitting here giving you a personal view, and when I start supplementing my income from my savings, who knows when that will be. Maybe next year, if I don't find another job, but when I start to

Merryn: This is a televised job interview.

Daniel: Yes please. So when I do start, and I hope it won't be before another ten years or a bit more, but when I start supplementing my income from savings, my view is that equity income is a pretty good way of doing that. And I think that's one of the big changes that we're going to have over as we get new cohorts of people coming into the pension freedoms with, you know, looking forward maybe to 20 or 30 years more of life, is that it's not just a question of we're go into a portfolio of bonds and take the income from it. It's going to be, you're going to be around for a long time.

And you know, having capital growth and a reasonable income is not a bad idea. And of course, a good equity income fund is a pretty simple product compared to some fancy-schmancy guaranteed underneath, with a bit of upside and so on, that I think we're going to see. Now I'm not saying that's going to be a bad thing for everybody, because

Merryn: Nature's annuity basically, equity income.

Daniel: Not necessarily an annuity, but it could become an annuity later.

Merryn: That's what I mean, yes.

Daniel: Because, yes, a lot of people, what is it they say, you're going to be go-go, slow-go, no-go in retirement, and certainly, equity income would cover, I think go-go, and then you can start, you know, maybe cashing in a bit of capital later on.

Merryn: Yes, I mean, there is a sort of That's interesting that you say. It's one of the things that I'm finding, the industry moving incredibly slowly on is helping people through those decumulation phase. You know, the decumulation phase, which we all go through in our, you know, in the run up to retirement, and then there's this phase where we try not to spend much capital, we just spend income, but then it's inevitable, there has to be decumulation phase as well.

You know, there's no point in everyone going to the grave with half a million quid in their bank account and not having much fun in the meantime, but the industry is not good at helping with decumulation. And of course, of course it isn't, because the last thing an industry that relies on taking fees from savings wants to do, is help people run those savings down. That's not a very efficient way to run a business that relies on high levels of assets under management, and I'm not entirely sure where the solution to that is.

Daniel: Yes, I'm not sure it's quite that bad for the industry, because of course, this market has been annuities in the past, so it's been sitting in life companies in annuities, and for investment managers, what they've You know, they've been the ones running those pools of assets, so the life companies have gathered the assets into annuities, but it's still being either subsidiaries of the life companies, or other investment managers that have been running the assets and they've been gradually paid out anyway. So it's kind of moving from one place to another, rather than having assets that are then disappearing. It's just a different way of doing things, and

Merryn: Yes, but none the less, isn't the industry's interest to hold on to the capital? Interest, did I say?

Daniel: But it hasn't in the past with annuities. Of course it would be in the interest, but you know, get real. In fact it's not so much your readers who of course I worry about, but I think the people who we really should be worrying about are the millions who are coming through who are not your readers, with relatively small sums at retirement.

Merryn: Lots of them are also our readers. We have a big range of readers.

Daniel: Yes, well you said the hundreds of thousands who are going to be complaining about annuity products. I mean, I think for many people, coming into the part of their lives where they're going to be earning less, I almost think retirement is a word that I try not to use any more, because I think there's going to be very few people who'll get to their particular birthday, and then never do a day's work again and live off some pool of capital.

Merryn: This is disappointing news.

Daniel: Well, I'm sorry to disappoint you, but you know, it's better to face reality, and I think that, you know, they are going to have a pretty tough time, and I think that taking big fees out of them for products which probably will give them less volatility, because they're scared of, you know, perhaps the value of their fund falling, is not going to be in their best interests. So I think we really have to think through, as an industry, how we can do the best possible job for these customers.

Merryn: Go back briefly to something we were talking about earlier, which is remuneration, in that you have a double problem, which is that the fund management industry itself is very highly remunerated, so it's quite hard for them to get on their high horses about levels of CEO remuneration in the corporate sector. When everyone can just turn around and just say, "well, glasshouses, mate". It's a difficult situation and it's hard to see how the fund management industry can really challenge corporate industry.

Daniel: Well, I think it could, and it sometimes does

Merryn: I mean, it should, you're saying that it should

Daniel: Yes, I know you're saying it should, and I think it could, because ultimately, you know, the investment managers who have the votes. So If investment managers choose to exercise that voting power, then it isn't going to do a chief executive of a corporate much good to say "glasshouses", because they don't have votes, we do. So I don't think that's a reason for the investment management industry, not doing a great job.

Merryn: It might also be that it's difficult, you know, if you're earning £15m yourself, it's difficult to see the problem with someone else earning £15m. And you know, a lot of the newspaper reports, and I hate to have to mention this, but even as head of IA, you were paid what other people would consider to be a vast amount of money, total compensation of over £500,000. So you know, a lot of people would look at this and say it is endemic throughout the financial industry, that people are paid sums of money that makes it difficult for them to see how obscene it looks from the outside.

Daniel: Well that There I think you've got a point. I mean, it may be difficult to see how it looks from the outside, but I don't think it makes it impossible to say, because I earn 15 million, it's all right for you to earn 15 million. I mean, I probably think I'm worth every penny of it.

Merryn: And you're not.

Daniel: Exactly. I think you could probably see that in your own children's pocket-money debates. I don't think that that's a reason why not. I think the problem we have within financial services, but also within corporate pay, is there's been an arms race, and it's very difficult to bring an end to an arms race. So if we put to one side for a moment, pay in the sector, and I'm sure you'll want to come back to it, but just look at the pay for CEOs, effectively executive directors of listed companies, you had an arms race. There's been a lot of attention over the last 15, 20 years from government, trade unions, the media, corporate government experts, within investment management firms, and what's the result been?

Merryn: Nothing.

Daniel: Well, worse actually. The result has been that pay structures have become incredibly complicated and pay's gone up, and my kids call that an epic fail. So my view is that we've got to do something different, and probably the place to start is with complexity. It's very difficult, within that arms race, to say, everyone's got to earn a quarter of what they're currently earning. It's very difficult to just come along and say that and think it would work. But I think what you can do is say the complexity of these schemes makes it very difficult to work out, particularly in advance, where the people are going to earn a lot of money for delivering stunning value, or for doing something very mediocre, or even perhaps for failing. And so I think we do need to move to a much simpler set of pay structures for chief executives.

Merryn: But how, because anything you put in place produces weird incentives, right? Unless you can just go for a flat salary, which I would, but I can't see them going for that, right?

Daniel: It depends, so one of the things that I was able to do, before I left the Investment Association, was to set up an executive remuneration working group of only six people. A FTSE 100 chairman, a FTSE 100 CEO, an investment manager, a pension funds bod, and it was going to be me, but no longer, and the chairman, sorry, the chairman of a remuneration committee, all of whom believe that there's a problem. And with one task, which was to bring forward a proposal for a radical simplification of executive pay, because I think that if you get a really credible group of people together, to bring forward a proposal, you might just have a chance of getting something done.

Merryn: But just one thing, did all of those people think that they personally were worth every penny, that it was the others who had the problem?

Daniel: I didn't ask all of them that question The only one who I had that conversation with would recognise that their pay is actually way out of line with the value relative to other jobs in society, yes. So and I think that, yes actually, when I think back, if I try to remember the wording of the press release when we announced it, I think I said that executive pay was damaging the reputation of business and fund management with society, and that was intolerable in the long run. So, we can keep on going, keep on passing go, keep on collecting the big bonus cheques, but eventually, people will be marching down the street with pitchforks and burning torches.

Merryn: Frankly they are already. I mean, the level of trust between what you might call society and what you might call the corporate world has been eroded very quickly.

Daniel: Yes, which is not good for the corporate world in the long run. So

Merryn: We all live in the corporate world. We often say, dividing us up between non-corporate, corporate, but we are all actually part of the corporate world we so disapprove of on so many levels.

Daniel: Yes, and of course the clients of the industry are not just exposed to the shares that a particular fund manager holds, but they're exposed broadly across global markets, global companies, through their various funds. But also citizens, we're exposed to the overall output of industry, and the economic growth that generates. So I think we, as an industry, need to take a more holistic view, and then coming back to pay within the sector, and again, there's an arms race issue there, but I think that we, you know, I'd like to see new models. I think that bonuses are not really about performance incentivisation, in my view others would argue. I think that people come into work, do a good job, and generally want to do the best job they can. Does the bonus make them work harder? I'm not sure it does.

Merryn: Well all the evidence is that There's been a lot of research into this, and all the evidence is that it doesn't. In matter of fact, the vast majority of the time it skews their behaviour such that it makes things worse.

Daniel: Well it can do, so you have perverse instances, but I think bonuses are there actually for two reasons. One is to attract and retain. So, you know, again commercially, firms need to attract and retain the best staff, and if they get bonuses elsewhere you need to give them bonuses. So we've got that sort of arms race problem. And the other, I think, which is also something that I would view negatively, is that they're used to micromanage people. So, you know, post financial crisis, you might put it in to try to get the behaviours you want, as opposed to behaviours you don't want. And I'd say that that actually is shocking abandonment of management and leadership, which I think is what you're there to do is to get the right behaviours, not to try to do it through pay structures.

Merryn: I suppose it also slightly comes back to the fact, you know, when people ask why do banks pay such big bonuses and why do fund management companies pay such big bonuses. The answer is because they can, because they've been able to make, for a decade now, super profits that other businesses have not been able to make. Therefore they have the money to pay these big bonuses that you don't get No one gets big bonuses in the publishing industry, because this is a super competitive industry and our margins are significantly lower.

Daniel: Yes, but if

Merryn: So the money simply isn't there. So I think, to a degree, it comes down to the fact that if you allow an industry to continue to make super profits, you can then expect them to pay out super bonuses, right.

Daniel: Yes, that's right.

Merryn: It's about being able to.

Daniel: I think it's also about the arms race, because I mean, you take something like Bloomsbury Publishing, you know, they must have had, at some point, money coming out of their ears from the JK Rowling royalties. You know, was the

Merryn: But those were temporary super profits.

Daniel: Well they probably held on for a while, it was Harry Potter.

Merryn: But do you know what I mean? Everybody is not in the same semi-oligopolistic condition at the same time, and therefore able to make super profit margins at the same time.

Daniel: No, but what I'm asking is, actually, did the publisher?

Merryn: Did they pay it out?

Daniel: Did the editor of Harry Potter's books earn tens of millions, or was the money flowing through to JK Rowling, as perhaps you think it should do, but the shareholders at Bloomsbury, were the executives in the middle of that making super profits. Probably not earning the 15 million, yes.

Merryn: I wonder, I wonder.

Daniel: Yes, it would be interesting to know.

Merryn: It would be. OK, I think we will probably come to an end, but just one thing, if you could make one change, just one change, because obviously we can't do everything at once. There's one change that you could make to the fund management industry, what would it be?

Daniel: Watch this space.

Merryn: We'll find out. Daniel, thank you very much.

Daniel: Thanks very much.